Discussions

Transforming agriculture through the establishment of regional value chains in Africa

Transforming agriculture through the establishment of regional value chains in Africa

08 Feb 2017

Taku Fundira, tralac Associate, discusses how regional agricultural value chains can help drive economic transformation in Africa

Agriculture currently offers the greatest potential for poverty alleviation and job creation in Africa. The fact that it accounts for 32% of GDP in Africa coupled with the extent of its reach, vulnerable rural populations and urban dwellers with limited employment opportunities stand to gain. Growth generated by agriculture in sub-Saharan Africa is estimated to be 11 times more effective in reducing poverty than GDP growth in other sectors – a vital multiplier given that 65% of the continent’s labour force is engaged in agriculture.[1] Regardless, the sector has suffered sustained neglect resulting in Africa shifting from an exporter of agricultural products in the 1960s to a net importer of agricultural and food products today. Moreover, imports are expected to grow from US$35bn in 2015 to over US$110bn by 2025.[2]

These rising imports are indicative of a broader opportunity to transform agriculture as they demonstrate that demand exists, and a vibrant private agribusiness sector in Africa can be stimulated to service it. The emerging African middleclass with increasing disposable incomes and a growing discerning taste present further opportunities for farmers to exploit not only domestic markets but also regional markets, especially throughout African cities. For example, the rising poultry industry in Angola and Senegal could be supplied with feed by soybean producers in Nigeria or Zambia; and the proliferation of regional retail chains such Pick ‘n Pay and Spar offer opportunities for cross border supply chains. These are nascent but encouraging developments. Opportunities that the continental free trade area presents will if established allow African countries to derive greater benefits from their differences in comparative advantage.

The commitment by Heads of States in Africa since the launch of the Comprehensive Africa Agriculture Development Programme (CAADP) to develop agriculture has succeeded in raising awareness of and support for agricultural transformation among Africa’s policy makers. This is highlighted by for example the African Union’s (AU) 2014 theme “Agriculture and Food Security”, and the Summit of AU Heads of State and Government in Malabo that year, which called for agricultural transformation on the continent highlighting the importance of making agriculture attractive to the continent’s youth, and the focus on agro-processing. The time is therefore right for coming up with practical solutions to the challenges of African agricultural transformation to help translate this clear policy intent into action. This requires new ideas derived from lessons learnt from the past.

Against this background, the Economic Commission for Africa (ECA) has shifted gear towards raising the awareness of the urgency of moving agribusiness and regional agricultural value chain development up in the African transformation agenda. In this context, ECA has published a report Rethinking of African’s Agribusiness and agro industrial clusters for sustainable development, with the aim of contributing to building broad-based consensus for agribusiness promotion as a transformational development framework for Africa, as well as to foster institutional and policy innovation at national and regional level. A symposium was held in Abidjan – Ivory Coast in December 2016 where experts deliberated on the report and made proposals on an Agribusiness Strategy which is currently being developed, whose vision is “to enable the creation of a conducive environment for increased inclusive agribusiness with participation of small scale farmers in the response to market driven private sector investment and business in Africa’s agriculture.”

Through such initiatives, there is scope to boost progression towards agricultural transformation, the production of high value agricultural products and connecting African agro-processing firms to the (regional) value chains. Therefore, promoting regional agricultural value chains is certainly essential towards changing the status quo by promoting economies of scale, economies of vertical coordination and transactions, complementarities, diversification and specialization among countries. It is hoped that this would, subsequently, create incentives for significant private sector investment, thus allowing for, the full realisation of competitiveness gains and intra-regional trade potential for African agriculture.

Such agricultural transformation in Africa must be mindful of the need to create more local value added goods, to meet the fast-growing demand in both African and overseas markets. In this regard, the importance of the development of intra-African agricultural markets and trade cannot be overemphasized. It is only through well established markets that farmers can gain greater access to productivity-enhancing inputs. Furthermore farmers and agro-food processors can have more opportunities to earn income from their products while investors can identify strong opportunities to invest in additional production, processing and marketing capacities along the value chain.

It is important to note that an overall economic transformation strategy which links agriculture with other economic sectors and underscores the need to pursue agricultural transformation will be required if success is to be achieved. It will also require increased flexibility in land (mainly rental) and labour markets to facilitate temporary and permanent migration within and out of agriculture as experienced in China. In this regard, the state has important roles to play in the early stages of economic transformation by:[3]

  • Ensuring that state institutions, design and implement the right policies;

  • Providing the required public goods (e.g., rural roads, and other high capital infrastructure);

  • Providing the facilitating services (research, extension, credit, etc.), and institutions.

Ultimately, strong political will is requried to undertake large scale reforms. This is particularly true in light of the critical role of policy reform and the creation of an enabling environment for investment and participation by the private sector. However, such strong political will should not be misconstrued as strong government intervention. A balance needs to be achieved where small and large private actors can thrive with minimal government involvement and where circumstances require, government can also take the lead.

.


[1] Mayaki, I. 2016. 3 ways to transform agriculture in Africa, World Economic Forum on Africa. [online]: https://www.weforum.org/agenda/2016/05/3-ways-to-transform-agriculture-in-africa/

[2] AfDB, 2016. Feed Africa: Strategy for Agricultural Transformation in Africa 2016-2025, Africa Development Bank, Abidjan. [online]: http://www.tralac.org/images/Resources/AfDB/AfDB Feed Africa Strategy for agricultural transformation in Africa 2016-2025.pdf

[3] ACET, 2016. Transforming Agriculture to Power Africa’s Economic Transformation, 2016 African Transformation Report, African Center for Economic Transformation. [online]: http://agbiz.co.za/uploads/AgbizNews16/160324_ATR2ConcepNoteMarch2016.pdf